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Fred Hickey: Tablet overdose.

One of best-kept secrets in the investment newsletter game is The High-Tech Strategist, a monthly review by the Nashua, New Hampshire-based curmudgeon Fred Hickey. Fred has a reputation as something of a tech perma-bear, which isn't quite true, though it certainly is the case that he's among the more skeptical observers of the tech scene.

Anyway, all of that is prologue to the sobering take Fred offers on the outlook for the tablet sector in the February issue of the newsletter. This morning, as I noted in an earlier post, Citigroup downgraded shares of Nvidia (NVDA), at least in part in anticipation that expectations for 2011 tablet unit sales are at risk of over-estimating demand. That's consistent with the way Fred looks at the world.

Here's an excerpt from the latest newsletter:

Apple currently dominates the tablet market. Other than Samsung's Galaxy Tab, there was virtually no competition for the iPad in Q4. Apple has first-mover advantage in the category and also has its App Store - which will make it difficult for newcomers planning to enter the market this year. Just how much competition will there be? An absolutely incredible amount. There are an estimated 80 to 100 new tablet models in development. Every PC maker (HP, Dell, Lenovo, Toshiba), every mobile phone producer (Samsung, LG, Nokia, Research In Motion, Sony Ericsson, Huawei, ZTE), every Asian network builder (Acer, Asus) and even the second largest seller of TV sets in the U.S. (Vizio) are planning to unveil new tablet models in 2011. And they're all going to obtain 10$-20% market share. Here's another example of what happens when there's too much money floating around the world - it leads to mal-investment. In 2000 we had way too much fiber optic capacity built. In 2011, there will be way too many tablets built.

I've seen a lot of crowded tech categories before, but this is comical. The makers will all build too much tablet inventory based upon their optimistic internal forecasts. That will lead to an epic glut and then a pricing bloodbath, as they try to give the stuff away. It should make for some great short-selling opportunities among the tablet component makers later this year. For now, we're in the unbridled optimism phase for tablets.